Title of each class
|
Name of each exchange on which registered
|
||
Ordinary Shares, par value NIS 0.331/3 per share
|
Nasdaq Global Select Market
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
ITURAN LOCATION AND CONTROL LTD. AND SUBSIDIARIES
|
Fahn Kanne & Co.
Head Office
23 Menachem Begin Road
Tel-Aviv 66184, ISRAEL
P.O.B. 36172, 61361
|
Avda. Quintana 585 - 8° Piso 1129 Cdad. Autónomade Buenos Aires - Argentina - Tel: +54-11 4808 4800 - FAX: +54-11 4804 6191
Estudio Urien & Asoc.
Auditores - Consultores
|
Signed by: | |
Gustavo R. Chesta (Partner)
Estudio Urien & Asociados
Argentina
February 14, 2011
|
Avda. Quintana 585 - 8° Piso 1129 Cdad. Autónoma de Buenos Aires - Argentina - Tel: +54-11 4808 4800 - FAX: +54-11 4804 6191
Estudio Urien & Asoc.
Auditores - Consultores
|
Page
|
||
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated Balance Sheets
|
F-3-F-4
|
|
Consolidated Statements of Income
|
F-5
|
|
Statements of Changes in Equity
|
F-6-F-7
|
|
Consolidated Statements of Cash Flows
|
F-8-F-9
|
|
Notes to Consolidated Financial Statements
|
F-10-F-42
|
Description of Document
|
|
1.1
|
Amended and Restated Articles of Association of the Company (1)
|
1.2
|
Form of Memorandum of Association of the Company (English Translation) (1)
|
2.1
|
Shareholders Agreement, dated May 18, 1998, by and between Moked Ituran Ltd., Moked Services, Information, Management, Investments, Yehuda Kahane Ltd., F.K. Generators and Equipment Ltd., Gideon Ezra, Ltd., Efraim Sheratzky, and Yigal Shani (English translation). (1)
|
2.2
|
Form of Amendment to Shareholders Agreement dated May 18, 1998, by and between Moked Ituran Ltd., Moked Services, Information, Management and Investments, Yehuda Kahane Ltd., F.K. Generators and Equipment Ltd., Gideon Ezra, Ltd., Efraim Sheratzky and/or T.S.D. Holdings Ltd., and Yigal Shani and/or G.N.S. Holdings Ltd. (English translation). (1)
|
4.1
|
Agreement dated January 23, 2007, between E-Com Global Electronic Commerce Ltd. and Gil Sheratzky (English translation) (4)
|
4.2
|
Agreement with an Independent Contractor, dated February 1, 2003, by and between the Registrant, Izzy Sheratzky, and A. Sheratzky Holdings Ltd. (English translation). (1)
|
4.3
|
Agreement with an Independent Contractor, dated September 5, 2002, by and between the Registrant, Eyal Sheratzky, and A. Sheratzky Holdings Ltd., addendum thereof, dated October 28, 2002, and resolution of the Registrant's shareholders dated February 24, 2004 (English translation). (1)
|
4.4
|
Agreement with an Independent Contractor, dated September 5, 2002, by and between the Registrant, Nir Sheratzky, and A. Sheratzky Holdings Ltd., addendum thereof, dated October 28, 2002, and resolution of the Registrant's shareholders dated February 24, 2004 (English translation). (1)
|
4.5
|
Addendum No. 2 dated December 13, 2007 (effective January 8, 2003) and Addendum No. 3 dated April 6, 2011 to the agreement between the Company and A. Sheratzky Holdings Ltd., and Nir Sheratzky (4)
|
4.6
|
Addendum No. 2 dated December 13, 2007 (effective January 8, 2003) and Addendum No. 3 dated April 6, 2011 to the agreement between the Company and A. Sheratzky Holdings Ltd., and Eyal Sheratzky (4)
|
4.7
|
Addendum No. 1 dated April 6, 2011 to the agreement between the Company and A. Sheratzky Holdings Ltd. and Izzy Sheratzky (4)
|
4.8
|
Consulting Services Agreement, dated March 23, 1998, by and between the Registrant and Yehuda Kahane Ltd., including addendum thereof, as of May 25, 2003 (English translation). (1)
|
4.9
|
Unprotected Lease Agreement, dated February 7, 2002, by and between Mofari Ltd. and the Registrant and addendum thereof, dated February 19, 2002 (English translation) (1)
|
4.10
|
Lease Agreement, dated May 29, 2002, by and between Rinat Yogev Nadlan and Ituran Cellular Communication Ltd. (English translation). (1)
|
4.11
|
Deed of undertaking and indemnification, dated November 12, 2000, executed by the Registrant to the benefit of Bank Hapoalim, B.M. on behalf of Ituran Localizacao e Controle (English translation). (1)
|
4.12
|
Indenture, dated August 6, 2001, by the Registrant for the benefit of Bank Hapoalim, B.M. (English translation). (1)
|
4.13
|
Indenture, dated January 29, 2002, by the Registrant for the benefit of Bank Hapoalim, B.M. (floating lien) (English translation). (1)
|
4.14
|
Indenture, dated January 29, 2002, by the Registrant for the benefit of Bank Hapoalim, B.M. (English translation). (1)
|
4.15
|
Deed of undertaking for repayment of loan, dated May 20, 2004, made by the Registrant in favor of Bank Hapoalim, B.M. (English translation). (1)
|
4.16
|
Lease Agreement, dated March 16, 2000, by and between Teleran Localizacao e Controle Ltda. and T4U Holding B.V., and addendum thereof, dated May 31, 2000. (1)
|
4.17
|
Lease Agreement, dated November 23, 2001, by and between Ituran de Argentina S.A. and El Sr. Mario Galuppo (English translation). (1)
|
4.18
|
Lease Agreement, dated September 7, 2001, by and between Ituran de Argentina S.A. and El Sr. Gustavo Eduardo Bazan (English translation). (1)
|
4.19
|
Form of Directors' Letter of Indemnity (English translation). (1)
|
4.20
|
Agreement with Mapa dated April 26, 2007 (2)
|
4.21
|
Share Purchase Agreement between dated as of November 15, 2007 by and between Ituran Location and Control Ltd., Telematics Wireless Ltd. and ST Electronics (Info-Comm Systems) Pte Ltd. (3)
|
4.22
|
Frame Product and Services Purchase Agreement dated January 1, 2008 by and between Ituran Location and Control Ltd. and Telematics Wireless Ltd. (3) *
|
8
|
List of significant subsidiaries (4)
|
12.1
|
Certification by chief executive officer as required by Rule 13a-14(a) **
|
12.2
|
Certification by person serving in the capacity of chief financial officer as required by Rule 13a-14(a). **
|
13
|
Certification by co-chief executive officers and the person serving in the capacity of chief financial officer as required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.**
|
15.1
|
Letter of Ernst & Young Terco Auditores Independentes S.S. to Securities and Exchange Commission dated June 27, 2011(4)
|
(1)
|
Incorporated by reference to Registrant’s Registration Statement on Form F-1 (File No. 333-128028) filed on September 23, 2005.
|
(2)
|
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2006 and incorporated herein by reference.
|
(3)
|
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2007 and incorporated herein by reference.
|
(4)
|
Filed as an exhibit to the annual report on Form 20-F for the year ended December 31, 2010 and incorporated herein by reference.
|
Page
|
|
F-2
|
|
Consolidated Financial Statements:
|
|
F-3
|
|
F-5
|
|
F-6
|
|
F-8
|
|
F-10
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE STOCKHOLDERS OF
ITURAN LOCATION AND CONTROL LTD.
|
US dollars
|
||||||||
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Current assets
|
||||||||
Cash and cash equivalents
|
46,674 | 60,813 | ||||||
Deposit in escrow (Note 12A1)
|
5,238 | 5,227 | ||||||
Investments in marketable securities
|
1,509 | 4,213 | ||||||
Accounts receivable (net of allowance for doubtful accounts)
|
31,161 | 24,906 | ||||||
Other current assets (Note 2)
|
12,770 | 6,136 | ||||||
Inventories (Note 3)
|
8,501 | 7,924 | ||||||
105,853 | 109,219 | |||||||
Long-term investments and other assets
|
||||||||
Deposit in Escrow (Note 12A1)
|
7,858 | 7,840 | ||||||
Investments in affiliated company (Note 4A)
|
220 | 205 | ||||||
Investments in other companies (Note 4B)
|
86 | 80 | ||||||
Other non-current assets (Note 5)
|
3,709 | 1,742 | ||||||
Loan to former employee
|
558 | 558 | ||||||
Deferred income taxes (Note 17)
|
4,934 | 5,653 | ||||||
Funds in respect of employee rights upon retirement
|
4,498 | 3,606 | ||||||
21,863 | 19,684 | |||||||
Property and equipment, net (Note 6)
|
46,147 | 42,262 | ||||||
Intangible assets, net (Note 7)
|
4,402 | 5,064 | ||||||
Goodwill (Note 8)
|
10,079 | 9,639 | ||||||
Total assets
|
188,344 | 185,868 |
The accompanying notes are an integral part of the consolidated financial statements.
|
US dollars
|
||||||||
December 31,
|
||||||||
(in thousands, except share data)
|
2010
|
2009
|
||||||
Current liabilities
|
||||||||
Credit from banking institutions (Note 9)
|
98 | 6 | ||||||
Accounts payable
|
13,087 | 13,459 | ||||||
Deferred revenues
|
6,714 | 5,486 | ||||||
Litigation obligation (Note 12A2)
|
21,852 | - | ||||||
Other current liabilities (Note 10)
|
17,482 | 17,443 | ||||||
59,233 | 36,394 | |||||||
Long-term liabilities
|
||||||||
Long term Loans (Note 11)
|
233 | - | ||||||
Liability for employee rights upon retirement
|
6,472 | 5,457 | ||||||
Provision for contingencies
|
5,324 | 3,071 | ||||||
Deferred revenues
|
873 | - | ||||||
Deferred income taxes (Note 17)
|
1,046 | 1,209 | ||||||
13,948 | 9,737 | |||||||
Contingent liabilities, liens and guarantees (Note 12)
|
||||||||
Capital Notes (Notes 13 and 12A2)
|
- | 5,894 | ||||||
Equity:
|
||||||||
Stockholders’ equity (Note 14)
|
||||||||
Share capital – ordinary shares of NIS 0.33⅓ par value:
|
1,983 | 1,983 | ||||||
Authorized – December 31, 2010 and 2009 – 60,000,000 shares
|
||||||||
Issued and outstanding – December 31, 2010 and 2009 – 23,475,431 shares
|
||||||||
Additional paid- in capital
|
71,927 | 73,554 | ||||||
Accumulated other comprehensive income
|
23,226 | 18,036 | ||||||
Retained earning
|
43,689 | 66,607 | ||||||
Treasury stock at cost – December 31, 2010 and 2009 – 2,507,314 shares
|
(30,054 | ) | (30,054 | ) | ||||
Stockholders’ equity
|
110,771 | 130,126 | ||||||
Non-controlling interests
|
4,392 | 3,717 | ||||||
Total equity
|
115,163 | 133,843 | ||||||
Total liabilities and equity
|
188,344 | 185,868 |
The accompanying notes are an integral part of the consolidated financial statements.
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands except per share data)
|
2010
|
2009
|
2008
|
|||||||||
Revenues:
|
||||||||||||
Location-based services
|
108,101 | 91,574 | 86,051 | |||||||||
Wireless communications products
|
39,724 | 29,807 | 46,565 | |||||||||
147,825 | 121,381 | 132,616 | ||||||||||
Cost of revenues:
|
||||||||||||
Location-based services
|
40,820 | 33,377 | 31,386 | |||||||||
Wireless communications products
|
34,354 | 27,445 | 37,611 | |||||||||
75,174 | 60,822 | 68,997 | ||||||||||
Gross profit
|
72,651 | 60,559 | 63,619 | |||||||||
Research and development expenses
|
481 | 372 | 408 | |||||||||
Selling and marketing expenses
|
8,675 | 7,684 | 9,628 | |||||||||
General and administrative expenses
|
31,671 | 27,213 | 27,505 | |||||||||
Other expenses, net (Note 15)
|
1,156 | 908 | 418 | |||||||||
Operating income
|
30,668 | 24,382 | 25,660 | |||||||||
Other expenses (Notes 12A2 and 4B2)
|
(14,745 | ) | - | (1,617 | ) | |||||||
Financing income (expenses), net (Note 16)
|
139 | 1,604 | (166 | ) | ||||||||
Income before income tax
|
16,062 | 25,986 | 23,877 | |||||||||
Income tax (Note 17)
|
(6,286 | ) | (7,139 | ) | (7,896 | ) | ||||||
Share in income (losses) of affiliated companies, net
|
(3 | ) | 13 | (25 | ) | |||||||
Net income for the year
|
9,773 | 18,860 | 15,956 | |||||||||
Less: Net income attributable to non-controlling interest
|
(1,071 | ) | (668 | ) | (1,074 | ) | ||||||
Net income attributable to the Company
|
8,702 | 18,192 | 14,882 | |||||||||
Basic and diluted earnings per share attributable to Company’s stockholders (Note 18)
|
0.42 | 0.87 | 0.69 | |||||||||
Basic and diluted weighted average number of shares outstanding
|
||||||||||||
Basic
|
20,968 | 20,968 | 21,431 | |||||||||
Diluted
|
20,968 | 20,977 | 21,440 |
The accompanying notes are an integral part of the consolidated financial statements.
|
(in thousands)
|
||||||||||||||||||||||||||||||||
COMPANY STOCKHOLDERS
|
||||||||||||||||||||||||||||||||
Ordinary shares
|
||||||||||||||||||||||||||||||||
Number
of shares
|
Share capital amount
|
Additional paid in capital
|
Accumulated other comprehensive income
|
Retained earnings
|
Treasury
stock
|
Non-controlling interests
|
Total
|
|||||||||||||||||||||||||
US dollars
|
||||||||||||||||||||||||||||||||
Balance as of January 1, 2008
|
23,476 | 1,983 | 73,554 | 13,715 | 66,239 | (5,900 | ) | 2,860 | 152,451 | |||||||||||||||||||||||
Changes during 2008:
|
||||||||||||||||||||||||||||||||
Net income
|
- | - | - | - | 14,882 | - | 1,074 | 15,956 | ||||||||||||||||||||||||
Losses on translation of non-Israeli currency financial statements of subsidiaries and on translation of the functional currency to the reporting currency
|
- | - | - | (1,228 | ) | - | - | (456 | ) | (1,684 | ) | |||||||||||||||||||||
Unrealized losses from available for sale marketable securities
|
- | - | - | (396 | ) | - | - | - | (396 | ) | ||||||||||||||||||||||
Total comprehensive income
|
13,876 | |||||||||||||||||||||||||||||||
Purchase of Company shares by the Company
|
- | - | - | - | - | (24,154 | ) | - | (24,154 | ) | ||||||||||||||||||||||
Dividend paid to non-controlling interests
|
- | - | - | - | - | - | (354 | ) | (354 | ) | ||||||||||||||||||||||
Dividend paid
|
- | - | - | - | (29,140 | ) | - | - | (29,140 | ) | ||||||||||||||||||||||
Balance as of January 1, 2009
|
23,476 | 1,983 | 73,554 | 12,091 | 51,981 | (30,054 | ) | 3,124 | 112,679 | |||||||||||||||||||||||
Changes during 2009:
|
||||||||||||||||||||||||||||||||
Net income
|
- | - | - | - | 18,192 | - | 668 | 18,860 | ||||||||||||||||||||||||
Gains on translation of non-Israeli currency financial statements of subsidiaries and on translation of the functional currency to the reporting currency
|
- | - | - | 5,658 | - | - | 94 | 5,752 | ||||||||||||||||||||||||
Losses in respect of derivative financial instruments designated for cash flow hedge, net of related taxes
|
- | - | - | (122 | ) | - | - | - | (122 | ) | ||||||||||||||||||||||
Unrealized gains from available for sale marketable securities
|
- | - | - | 180 | - | - | - | 180 | ||||||||||||||||||||||||
Reclassification adjustment on available-for-sale
|
- | - | - | 229 | - | - | - | 229 | ||||||||||||||||||||||||
Total comprehensive income
|
- | - | - | - | - | - | 24,899 | |||||||||||||||||||||||||
Dividend paid to non-controlling interest
|
- | - | - | - | - | - | (169 | ) | (169 | ) | ||||||||||||||||||||||
Dividend paid
|
- | - | - | - | (3,566 | ) | - | (3,566 | ) | |||||||||||||||||||||||
Balance as of December 31, 2009
|
23,476 | 1,983 | 73,554 | 18,036 | 66,607 | (30,054 | ) | 3,717 | 133,843 |
The accompanying notes are an integral part of the consolidated financial statements.
|
(in thousands)
|
||||||||||||||||||||||||||||||||
COMPANY STOCKHOLDERS
|
||||||||||||||||||||||||||||||||
Ordinary shares
|
||||||||||||||||||||||||||||||||
Number
of shares
|
Share capital amount
|
Additional paid in capital
|
Accumulated other comprehensive income
|
Retained earnings
|
Treasury
stock
|
Non-controlling interests
|
Total
|
|||||||||||||||||||||||||
US dollars
|
||||||||||||||||||||||||||||||||
Balance as of January 1, 2010
|
23,476 | 1,983 | 73,554 | 18,036 | 66,607 | (30,054 | ) | 3,717 | 133,843 | |||||||||||||||||||||||
Changes during 2010:
|
||||||||||||||||||||||||||||||||
Net income
|
- | - | - | - | 8,702 | - | 1,071 | 9,773 | ||||||||||||||||||||||||
Gains on translation of non-Israeli currency financial statements of subsidiaries and on translation of the functional currency to the reporting currency
|
- | - | - | 5,068 | - | - | 227 | 5,295 | ||||||||||||||||||||||||
Acquisition of non controlling interests
|
- | - | (1,627 | ) | - | - | - | (623 | ) | (2,250 | ) | |||||||||||||||||||||
Losses in respect of derivative financial instruments designated for cash flow hedge, net of related taxes
|
- | - | - | (103 | ) | - | - | - | (103 | ) | ||||||||||||||||||||||
Realized losses in respect of derivative instruments designated for cash flow hedge, net of related taxes
|
- | - | - | 225 | - | - | - | 225 | ||||||||||||||||||||||||
Total comprehensive income
|
12,940
|
|||||||||||||||||||||||||||||||
Dividend paid
|
- | - | - | - | (31,620 | ) | - | - | (31,620 | ) | ||||||||||||||||||||||
Balance as of December 31, 2010
|
23,476 | 1,983 | 71,927 | 23,226 | 43,689 | (30,054 | ) | 4,392 | 115,163 |
The accompanying notes are an integral part of the consolidated financial statements.
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Cash flows from operating activities
|
||||||||||||
Net income for the year
|
9,773 | 18,860 | 15,956 | |||||||||
Adjustments to reconcile net income to net cash from operating activities:
|
||||||||||||
Depreciation, amortization and impairment of goodwill
|
15,875 | 12,530 | 10,115 | |||||||||
Exchange differences on principal of deposit and loans, net
|
839 | 28 | 73 | |||||||||
Gains in respect of trading marketable securities
|
(5 | ) | (1,421 | ) | (2,108 | ) | ||||||
Write-off of an investment in other company
|
- | - | 1,617 | |||||||||
Increase in liability for employee rights upon retirement
|
667 | 676 | 615 | |||||||||
Share in losses (gains) of affiliated companies, net
|
3 | (13 | ) | 25 | ||||||||
Deferred income taxes
|
(1,159 | ) | 988 | (1,533 | ) | |||||||
Capital gains on sale of property and equipment, net
|
(299 | ) | (2 | ) | (3 | ) | ||||||
Decrease (increase) in accounts receivable
|
(4,669 | ) | 722 | 1,218 | ||||||||
Increase in other current assets
|
(3,728 | ) | (1,716 | ) | (1,938 | ) | ||||||
Decrease (increase) in inventories
|
(73 | ) | 646 | 1,752 | ||||||||
Increase (decrease) in accounts payable
|
(1,229 | ) | 1,734 | (1,208 | ) | |||||||
Increase (decrease) in deferred revenues
|
1,752 | 631 | (1,047 | ) | ||||||||
Increase in other current liabilities
|
987 | 4,063 | 3,722 | |||||||||
Litigation obligation
|
14,745
|
- | - | |||||||||
Net cash provided by operating activities
|
33,479 | 37,726 | 27,256 | |||||||||
Cash flows from investment activities
|
||||||||||||
Increase in funds in respect of employee rights upon retirement, net of withdrawals
|
(662 | ) | (794 | ) | (250 | ) | ||||||
Capital expenditures
|
(18,344 | ) | (15,698 | ) | (16,947 | ) | ||||||
Intangible assets expenditures
|
(90 | ) | - | - | ||||||||
Deposit in escrow
|
- | - | (12,998 | ) | ||||||||
Deposit
|
(52 | ) | (389 | ) | (369 | ) | ||||||
Proceeds from sale of property and equipment
|
1,286 | 106 | 233 | |||||||||
Investments in available for sale marketable securities
|
- | (182 | ) | (3,397 | ) | |||||||
Investments in marketable securities
|
(2,664 | ) | (34,467 | ) | (33,211 | ) | ||||||
Sale of marketable securities
|
5,552 | 60,600 | 13,420 | |||||||||
Sale of available for sale marketable securities
|
- | 3,886 | - | |||||||||
Investment in subsidiary
|
- | - | (354 | ) | ||||||||
Proceeds from sale of subsidiary, net of direct related expenses
|
- | - | 58,720 | |||||||||
Net cash provided by (used in) investment activities
|
(14,974 | ) | 13,062 | 4,847 | ||||||||
Cash flows from financing activities
|
||||||||||||
Short term credit from banking institutions, net
|
46 | (316 | ) | (2 | ) | |||||||
Repayment of long term loans
|
(18 | ) | - | - | ||||||||
Acquisition of non-controlling interests
|
(2,250 | ) | - | - | ||||||||
Dividend paid
|
(31,620 | ) | (3,566 | ) | (29,140 | ) | ||||||
Dividend paid to non-controlling interest
|
- | (169 | ) | - | ||||||||
Purchase of treasury stock
|
- | - | (24,154 | ) | ||||||||
Net cash used in financing activities
|
(33,842 | ) | (4,051 | ) | (53,296 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
1,198 | 1,565 | 5,035 | |||||||||
Net increase (decrease) in cash and cash equivalents
|
(14,139 | ) | 48,302 | (16,158 | ) | |||||||
Balance of cash and cash equivalents at beginning of year
|
60,813 | 12,511 | 28,669 | |||||||||
Balance of cash and cash equivalents at end of year
|
46,674 | 60,813 | 12,511 |
The accompanying notes are an integral part of the consolidated financial statements.
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Interest paid
|
85 | 173 | 630 | |||||||||
Income taxes paid, net of refunds
|
10,475 | 3,466 | (**) | 24,890 | (*) |
(*)
|
Including US$ 15,817 thousand with respect to taxes applicable to the capital gain on the sale of a subsidiary.
|
(**)
|
See Note 17A.
|
The accompanying notes are an integral part of the consolidated financial statements.
|
NOTE 1
|
-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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A.
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General
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1.
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Operations
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a.
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Ituran Location and Control Ltd. (the “Company”) commenced operations in 1994. The Company and its subsidiaries (the “Group”) are engaged in the provision of location-based services and machine-to-machine wireless communications products for use in stolen vehicle recovery, fleet management and other applications.
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b.
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Regarding the sale of the subsidiary, Telematics Wireless Ltd. (Telematics), see Note 12A1.
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c.
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Regarding the district court decision with respect to Leonardo P.L.’s claim, see Note 12A2.
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2.
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Functional currency and translation to the reporting currency
The functional currency of the Company and its subsidiaries located in Israel is the New Israeli Shekel (“NIS”), which is the local currency in which those entities operate. The functional currency of the foreign subsidiaries of the Group is their respective local currency.
The consolidated financial statements of the Company and all of its subsidiaries were translated into U.S. dollars in accordance with the standards of the Financial Accounting Standards Board ("FASB"). Accordingly, assets and liabilities were translated from local currencies to U.S. dollars using yearend exchange rates, and income and expense items were translated at average exchange rates during the year.
Gains or losses resulting from translation adjustments (which result from translating an entity’s financial statements into U.S. dollars if its functional currency is different than the U.S. dollar) are reflected in equity, under “accumulated other comprehensive income (loss)”.
Balances denominated in, or linked to foreign currency are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the statement of income, the exchange rates applicable on the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses.
The following table presents data regarding the dollar exchange rate of relevant currencies and the Israeli CPI:
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Exchange rate
of one US dollar
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Israeli CPI(*)
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|||||||||||
NIS
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Real
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|||||||||||
At December 31,
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||||||||||||
2010
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3.549 | 1.6662 |
133.89 points
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2009
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3.775 | 1.7412 |
130.42 points
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2008
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3.802 | 2.337 |
125.50 points
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Increase (decrease) during the year:
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2010
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(5.99 | )% | (4.31 | )% | 2.7 | % | ||||||
2009
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(0.71 | )% | (25.49 | )% | 3.9 | % | ||||||
2008
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(1.14 | )% | 31.94 | % | 3.8 | % |
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(*)
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Based on the Index for the month ending on each balance sheet date, on the basis of 1998 average 100.
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont)
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A.
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General (cont.)
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3.
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Basis of presentation
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4.
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Use of estimates in the preparation of financial statements
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B.
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Principles of consolidation
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C.
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Cash and cash equivalents
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D.
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Deposits in escrow
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E.
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Marketable securities
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NOTE 1
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-
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont)
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E.
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Marketable securities (cont.)
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F.
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Treasury stock
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G.
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Allowance for doubtful accounts
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H.
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Inventories
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I.
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Investment in affiliated companies
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J.
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Investment in other companies
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont)
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K.
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Derivatives
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L.
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Property and equipment
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1.
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Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated on the straight-line method over the shorter of the estimated useful life of the property or the duration of the lease.
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2.
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Rates of depreciation:
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%
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||||
Operating equipment (mainly 20%-33%)
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6.5-33 | |||
Office furniture, equipment and computers
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7-33 | |||
Buildings
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2.5 | |||
Vehicles
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15 | |||
Leasehold improvements
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Duration of the lease which
is less or equal to useful life.
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M.
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Impairment of long-lived assets
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The Group’s long-lived assets are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value (see Note 1O with respect to the annual impairment test of goodwill). During 2010, 2009 and 2008, the Company recorded an impairment loss in an amount of US$ 157,000, US$ 901,000 and US$ 415,000, respectively. See Notes 7 and 8.
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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N.
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Income taxes
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O.
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Goodwill and intangible assets
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See Notes 1M, 7 and 8, with respect to impairment of intangible assets and goodwill recorded in 2010, 2009 and 2008.
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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O.
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Goodwill and intangible assets (cont.)
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Intangible assets with finite lives are amortized using the straight-line basis over their useful lives, to reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up, as follows
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Years
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GIS database
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10 | |||
Customer base
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5 | |||
Brand name
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15 | |||
Other
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3-10 |
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P.
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Contingencies
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Q.
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Liability for employee rights upon retirement
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The Company's liability for employee rights upon retirement with respect to its Israeli employees is calculated, pursuant to Israeli severance pay law, based on the most recent salary of each employee multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. The Company makes monthly deposits to insurance policies and severance pay funds. The liability of the Company is fully provided for.
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The deposited funds include profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies, and includes profits or losses.
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The liability for employee rights upon retirement in respect of the employees of the non-Israeli subsidiaries of the Company, is calculated on the basis of the labor laws of the country in which the subsidiary is located and is covered by an appropriate accrual.
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Severance expenses for the years ended December 31, 2010, 2009 and 2008, amounted to US$ 770,000, US$ 576,000 and US$ 967,000, respectively.
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R.
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Revenue recognition
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1.
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Revenues from sales are recognized when title and risk of loss of the product pass to the customer (usually upon delivery).
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2.
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Revenues from SVR services subscription fees and from installation services, sold to customers within a single contractually binding arrangement were accounted for revenue recognition purposes as a single unit of accounting in accordance with ASC Topic 605-25, “Multiple Element Arrangements” since the installation services element was determined not to have a value on a stand-alone basis to the customer. Accordingly, the entire contract fee for the two deliverables is recognized ratably on a straight-line basis over the subscription period.
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3.
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Revenues from rentals of leased equipment under operating lease are recognized over the term of the lease agreement (1-3 years).
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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R.
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Revenue recognition (cont.)
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4.
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Deferred revenues include unearned amounts received from customers (mostly for the provision of installation and subscription services) but not yet recognized as revenues.
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5.
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Sale and leaseback transactions
The Company accounts for sale and leaseback transactions in accordance with the provisions of ASC Topic 840-40, "Sale-Leaseback Transactions".
Accordingly, with respect of a certain leaseback transaction that was determined to be an operating lease and involving the use of more than a minor part but less than substantially all of the asset sold, the entire profit on the sale was deferred and amortized in proportion to rental payments over the term of the lease. There was no recognition of any profit at the date of the sale since the present value of the minimum lease payments exceeded the amount of the profit.
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S.
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Warranty costs
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T.
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Research and development costs
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1.
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Research and development costs (other than computer software related expenses) are expensed as incurred.
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U.
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Advertising costs
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V.
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Earnings per share
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
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W.
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Comprehensive income
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X.
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Fair value measurements
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Y.
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Deferred installation expenses
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NOTE 1
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont)
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Z.
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Reclassification
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Certain comparative figures have been reclassified to conform to the current year presentation. Such reclassifications did not have any impact on the Company's equity, net income or cash flows.
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AA.
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Recently issued accounting pronouncements
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1.
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ASC Topic 605 - 25 “Revenue Recognition - Multiple-Element Arrangements”
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2.
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ASC Topic 820, “Fair Value Measurements and Disclosures”
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3.
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ASC Topic 310, “Receivables”
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NOTE 2
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OTHER CURRENT ASSETS
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US dollars
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||||||||
December 31,
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||||||||
(in thousands)
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2010
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2009
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Prepaid expenses
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1,321 | 1,891 | ||||||
Government institutions
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3,269 | 2,304 | ||||||
Deferred installation expenses
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4,242 | - | ||||||
Deferred income taxes
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1,838 | 72 | ||||||
Advances to suppliers
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1,807 | 1,021 | ||||||
Employees
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140 | 296 | ||||||
Related parties
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66 | 171 | ||||||
Others
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87 | 381 | ||||||
12,770 | 6,136 |
NOTE 3
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INVENTORIES
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US dollars
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||||||||
December 31,
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||||||||
(in thousands)
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2010
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2009
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||||||
Finished products
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6,780 | 6,292 | ||||||
Raw materials
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1,584 | 1,102 | ||||||
Work in progress
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137 | 530 | ||||||
8,501 | 7,924 |
NOTE 4
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INVESTMENTS IN AFFILIATED AND OTHER COMPANIES
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A.
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Investments in affiliated company
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B.
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Investments in other companies
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1.
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Locationet Systems Ltd. (“Locationet”)
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NOTE 4
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INVESTMENTS IN AFFILIATED AND OTHER COMPANIES (cont.)
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B.
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Investments in other companies (cont.)
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2.
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Korea Location Information & Communications Ltd. (“KLIC”)
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In the fourth quarter of 2008, the Company wrote off the entire balance of this investment in an amount of US$ 1,617,000.
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NOTE 5
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OTHER NON-CURRENT ASSETS
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US dollars
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||||||||
December 31,
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||||||||
(in thousands)
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2010
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2009
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Government institutions
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1,632 | 1,066 | ||||||
Deferred installation expenses
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1,286 | - | ||||||
Deposits
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791 | 676 | ||||||
3,709 | 1,742 |
NOTE 6
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PROPERTY AND EQUIPMENT, NET
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A.
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Property and equipment, net consists of the following:
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US dollars
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||||||||
December 31,
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||||||||
(in thousands)
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2010
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2009
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Operating equipment (*)
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68,613 | 61,288 | ||||||
Office furniture, equipment and computers
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20,881 | 16,626 | ||||||
Land
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1,160 | 1,090 | ||||||
Buildings
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3,443 | 3,315 | ||||||
Vehicles
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3,202 | 2,394 | ||||||
Leasehold improvements
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2,701 | 2,408 | ||||||
100,000 | 87,121 | |||||||
Less – accumulated depreciation and amortization (**)
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(53,853 | ) | (44,859 | ) | ||||
46,147 | 42,262 |
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(*)
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As at December 31, 2010 and 2009, an amount of US$ 46.3 million and US$ 35.3 million is subject to operating lease transactions, respectively.
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(**)
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As at December 31, 2010 and 2009, an amount of US$ 23.1 million and US$ 16.4 million is subject to operating lease transactions, respectively.
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B.
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In the years ended December 31, 2010, 2009 and 2008, depreciation expense was US$ 14.7 million, US$ 10.4 million and US$ 8.2 million, respectively and additional equipment was purchased in an amount of US$ 18.6 million, US$ 15.7 million and US$ 16.9 million, respectively.
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NOTE 7
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INTANGIBLE ASSETS, NET
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A.
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Intangible assets, net, consists of the following:
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US dollars
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||||||||||||||||
December 31,
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December 31,
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|||||||||||||||
(in thousands)
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2009
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2010
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2010
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2010
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Unamortized balance
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Original amount
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Accumulated amortization
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Unamortized balance
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GIS database
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3,021 | 4,362 | (1,609 | ) | 2,753 | |||||||||||
Customer base
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597 | 1,283 | (869 | ) | 414 | |||||||||||
Brand name
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1,025 | 1,325 | (328 | ) | 997 | |||||||||||
Others
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421 | (*) | 6,077 | (5,839 | ) | 238 | (*) | |||||||||
5,064 | 13,047 | (8,645 | ) | 4,402 |
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(*)
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See B below.
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Amortization of intangible assets amounted to US$ 1,059,000, US$ 1,180,000 and US$ 1,505,000 for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010, the estimated aggregate amortization of intangible assets for the next five years is as follows: 2011 – US$ 942,000; 2012 – US$ 738,000; 2013 – US$ 496,000, 2014 US$ 496,000, 2015 – US$ 496,000.
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B.
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During 2009 and 2008, the Company recorded an amount of US$ 751,000 and US$ 415,000, respectively, as an impairment loss with respect to the licenses. Such impairment was recorded due to the fact that such assets are no longer expected to be used.
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The impairment amount was included in "other expenses (income), net", and was based on valuation performed by management.
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NOTE 8
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GOODWILL
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A.
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The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 are as follows:
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US dollars
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||||||||||||
Location based services
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Wireless communications products
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Total
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(in thousands)
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Balance as of January 1, 2009
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4,954 | 4,776 | 9,730 | |||||||||
Changes during 2009:
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Impairment
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(150 | ) | - | (150 | ) | |||||||
Translation differences
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20 | 39 | 59 | |||||||||
Balance as of December 31, 2009
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4,824 | 4,815 | 9,639 | |||||||||
Changes during 2010:
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Impairment
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(157 | ) | - | (157 | ) | |||||||
Translation differences
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250 | 347 | 597 | |||||||||
Balance as of December 31, 2010
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4,917 | 5,162 | 10,079 |
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B.
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During 2010 and 2009, the Company recorded an amount of US$ 157,000 and US$ 150,000, respectively, as impairment with respect to goodwill.
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The amortization amount was included in "other expenses (income), net", and was based on valuation performed by management using the income approach (see Note 1O).
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NOTE 9
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CREDIT FROM BANKING INSTITUTIONS
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A.
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Composition:
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Interest
rates as of
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US dollars
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||||||||||
December 31,
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December 31,
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||||||||||
(in thousands)
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2010
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2010
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2009
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%
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Revolving credit – in NIS
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3.5 | 52 | 6 | ||||||||
Current maturities of long-term loans
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- | 46 | - | ||||||||
98 | 6 |
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B.
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Lines of credit
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Unutilized short-term lines of credit of the Group as of December 31, 2010, aggregated to US$ 2 million.
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C.
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Liens – see Note 12B.
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NOTE 10
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-
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OTHER CURRENT LIABILITIES
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Composition:
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US dollars
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||||||||
December 31,
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||||||||
(in thousands)
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2010
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2009
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||||||
Accrued expenses (*)
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8,272 | 7,724 | ||||||
Employees and institutions in respect thereof
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3,174 | 3,878 | ||||||
Government institutions
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5,757 | 5,589 | ||||||
Related party
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91 | 11 | ||||||
Derivative financial instruments
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- | 122 | ||||||
Others
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188 | 119 | ||||||
17,482 | 17,443 |
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(*)
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Includes approximately US$ 4.4 million and US$ 3 million for the years 2010 and 2009, respectively, regarding purchase price adjustment in connection with the sale of a subsidiary (see Note 12A1).
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NOTE 11
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LONG-TERM LOANS FROM BANKING INSTITUTIONS
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A.
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Composition:
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Interest
rates as of
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US dollars
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||||||||||
December 31,
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December 31,
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||||||||||
(in thousands)
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2010
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2010
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2009
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||||||||
%
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|||||||||||
In NIS (unlinked)
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4-4.5 | 279 | - | ||||||||
Less- current maturities
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- | (46 | ) | - | |||||||
233 | - |
NOTE 11
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LONG-TERM LOANS FROM BANKING INSTITUTIONS (cont.)
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B.
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Maturity dates
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US dollars
|
||||
December 31,
|
||||
(in thousands)
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2010
|
|||
First year (current maturities)
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46 | |||
Second year
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48 | |||
Third year
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185 | |||
279 |
NOTE 12
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CONTINGENT LIABILITIES, LIENS AND GUARANTEES
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A.
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Claims
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1.
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On December 31, 2007, the Company completed the sale of the subsidiary, Telematics Wireless Ltd. (Telematics), to a third party (hereinafter: the "Purchaser"). Pursuant to the sale transaction, the Company sold its entire shareholdings of Telematics to the purchaser, for an amount of US$ 80 million (based on a specified enterprise value of Telematics, following the purchase of a certain portion of Telematics' shares by Telematics for the aggregate sum of US$ 5 million). The Company was required to deposit an amount of US$5 million in order to secure any adjustments to the purchase price, as further described below (the “Adjustment Escrow Amount”). In addition, the Company was required to deposit an amount of US$ 7.5 million in an escrow account in order to ensure certain representations and warranties towards the Purchaser (the “Escrow Amount”). The Adjustment Escrow Amount and the Escrow Amount were deposited in escrow in January 2008, after receipt of the entire consideration from the purchaser.
The purchase price was subject to adjustments based on performance parameters of Telematics in the years 2007 and 2008, whereby any reduction in the purchase price in accordance with parameters of Telematics in the year 2007 may only be reduced according to the performance parameters of 2008. The adjustment, based on Telematics’ 2007 performance parameters according to the Company's management interpretation of the formula resulted in a reduction of the enterprise value and therefore reduction of the capital gain in an amount of approximately US$ 3 million
In 2008, the Company received a notice from the Purchaser (ST (Infocomm) Ltd.), claiming that based on Telematics’ performance parameters for the year 2007, the purchase price needs to be decreased by an amount of approximately US$ 10 million (out of which $3 million was recognized according to management estimate, as a reduction of the capital gain, based on Telematics’ 2007 performance parameters, however, such reduction may be decreased based on Telematics' performance parameters for the year 2008), according to the provisions of the sale agreement between the Company and the Purchaser. The Company rejected the Purchaser's claims. Subsequent to the abovementioned notice, the Company and the purchaser commenced arbitration proceedings regarding the adjustment required to be made, if any, to the purchase price, based on Telematics’ performance parameters in the year 2007 and the amount, if any, to be released from the escrow. On February 10, 2011 the Arbitrator delivered his determination according to which, the Purchaser's main claims for adjustments to the purchase price were rejected and based on Telematics’ 2007 financial statements, the purchase price should be reduced by approximately US$4.4 million. The Arbitrator determined that an amount of US$572,000 including interest accrued thereon was to be released from escrow and paid to the Company. The remainder funds held in escrow are to be kept in escrow pending determination of any reduction to the adjustment of the purchase price based on Telematics’ 2007 financial statements, i.e. approximately US$ 4.4 million, based on Telematics 2008 financial statements, which is still in dispute between ST and the Company. As a result, the escrow amount is currently still held in escrow.
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NOTE 12
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-
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CONTINGENT LIABILITIES, LIENS AND GUARANTEES (cont.)
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A.
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Claims (cont.)
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1.
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(cont.)
On December 21, 2009, the Company also received from the Purchaser a letter seeking indemnification under the purchase agreement for an alleged breach of certain representations made by Ituran under the purchase agreement, claiming damages in an amount of approximately US$ 4.3 million. The Purchaser's letter also contains an allegation in respect of a possible and additional breach of representations in an amount of approximately US$4.3 million, even though no damages were incurred by the Purchaser or by Telematics. The Company and the Purchaser are currently undergoing preliminary proceedings prior to entering into arbitration proceedings and signing a binding arbitration agreement. The Company believes that the claims made by the Purchaser as stated in their letter have no merits and intend to vigorously defend themselves against such claims.
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2.
|
The Company is involved in litigation with Leonardo L.P., a US based hedge fund ("Leonardo"), arising from a financial transaction entered into between the Company and Leonardo in February 2000. Pursuant to the terms of this financial transaction, the Company received a cash investment of $12 million in exchange for certain notes that were convertible into ordinary shares of the Company according to a predetermined formula. Pursuant to the formula, the conversion price of the notes was the lower of NIS 67.3 ($18.9) per share or an average trading price of the shares of the Company for a defined period prior to conversion. The conversion price was used to determine the number of shares into which the notes may be converted by dividing the notional principal amount of the notes, initially $12 million, by the conversion price. On the date the notes were issued, March 2, 2000, the notes were convertible into approximately 690,000 of the ordinary shares of the Company. As part of the terms of this financial transaction, and, as required by the rules of the Tel-Aviv Stock Exchange ("TASE") where the ordinary shares of the Company are traded (at that time of the transaction and also at current), the Company was required to seek the approval from the TASE for the issuance of the ordinary shares underlying the notes. The TASE approved the issuance of 2,250,000 of the ordinary shares of the Company as the number of registered shares that could be issued under the notes. The Company understood the terms of the financial transaction with Leonardo to provide that, except in certain limited circumstances, the amounts advanced to the Company, together with accrued interest on these advances at the annual rate of 3.5%, would be repaid and satisfied solely through the delivery of ordinary shares and that under no circumstance would the Company be required to deliver more than 2,250,000 of its ordinary shares. The Company believes that Leonardo also recognized that there was a limit on the number of shares issuable under the notes, and in fact at no time on or prior to the maturity date of the notes did Leonardo seek to convert the notes for more than 2,250,000 of the ordinary shares of the Company (see below the district court decision with respect to the abovementioned limit). Prior to the maturity date of the notes, Leonardo converted approximately $6.7 million of the notional principal amount of the notes into an aggregate of 2,241,594 of the ordinary shares of the Company. The Company believes that the holders of the notes are therefore only entitled to convert the balance of their notes into 8,406 shares, although in the pending litigation Leonardo has indicated that it does not believe that the notes were subject to any limit on the number of shares that could be issued to them on conversion and is seeking to recover damages based on this allegation.
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NOTE 12
|
-
|
CONTINGENT LIABILITIES, LIENS AND GUARANTEES (cont.)
|
|
A.
|
Claims (cont.)
|
|
2.
|
(cont.)
|
NOTE 12
|
-
|
CONTINGENT LIABILITIES, LIENS AND GUARANTEES (cont.)
|
|
A.
|
Claims (cont.)
|
|
3.
|
On June 24, 2010 the Brazilian Internal Revenue Service issue a tax assessment that claim the payment of R$2,847,894 (approximately US$1.58 million) plus interest in the amount of R$1,089,905 (approximately US$600 thousand) and penalties in the amount of R$3,633,365 (approximately US$2 million) which is composed of Income Tax 25%, Social Contribution 9%, fine at the rate of 150% on the principal sum plus interest, by reason of the offsetting on October 1, 2005, the amount of approximately US$ 3.8 million, of a receivable held by Ituran Beheer BV, a Dutch legal entity held by the Company, against accumulated losses of their subsidiary Ituran Sistemas de Monitamento Ltda, which originated from a technology transfer agreement executed by and between Ituran Brazil and OGM Investments B.V. (a Dutch company also held by the Company). The decision of the administration first level was unfavourable to the Company and they have filed an appeal to the Administrative Court of Appeals in São Paulo. The Company received a legal opinion from a prominent law firm in Brazil that the merits of the case are favorable to the subsidiary determining among other things that the imposition on their subsidiary of the Income Tax and Social contribution by the Brazilian Internal Revenue Service is illegal. Based on the legal advice obtained by the Company's subsidiary, the Company believes that the claim is without merit and intends to vigorously defend itself against such claim.
|
|
4.
|
On July 8, 2005, a class action was filed against a subsidiary of the Company, Ituran Florida Corporation, in the First Judicial District Court in Philadelphia, Pennsylvania. The lawsuit claims that Ituran Florida sent fax advertisements to the named plaintiff and the other members of the class allegedly in violation of the Telephone Consumer Protection Act of 1991. Ituran Florida filed a motion for judgment on the pleadings that such claims should not be heard as part of a class action. Such motion was denied by the court, the precertification discovery process was completed and a certification hearing is yet to be scheduled. The plaintiff agreed to limit the class action to Pennsylvania actions only. If the plaintiffs prevail the Company estimates that the subsidiary may have exposure pursuant to the provisions of the Telephone Consumer Protection Act in the maximum range of $500,000 to $750,000 for all class plaintiffs, plus punitive damages and expenses. However, based upon rulings by the Court in Philadelphia in another matter, the Company believes that the class action will be certified but that it is probable that a significant portion of the individual class members will unlikely qualify for inclusion in a class or be able to satisfy the burden of proof necessary for compensation. Even if the plaintiffs prevail, the Company believes that the resolution of this claim will not have a material effect on its revenues, operations or liquidity.
|
|
5.
|
On July 13 2010, the State Revenue Services of São Paulo issued a tax deficiency notice against the subsidiary in Brazil, Ituran Sistemas de Monitoramento Ltda., claiming that the vehicle tracking and monitoring services provided by the subsidiary should be classified as telecommunication services and therefore subject to the imposition of State Value Added Tax – ICMS, resulting in an imposition of 25% state value added tax on all revenues of the subsidiary during the period between August 2005 and December 2007. The tax deficiency notice is in the amount of R$36,499,984 (approximately US$22.1 million) plus interest in the amount of R$30,282,420 (approximately US$18.2 million) and penalties in the amount of R$66,143,446 (approximately US$40 million). The penalties may be drastically reduced if payment is affected within a specified period of time. The decision of the administration first level was unfavorable to the Company and they have filed an appeal to the Administrative Court of Appeals in São Paulo.
|
NOTE 12
|
-
|
CONTINGENT LIABILITIES, LIENS AND GUARANTEES (cont.)
|
|
A.
|
Claims (cont.)
|
|
5.
|
(cont.)
|
|
6.
|
On March 21, 2011, the Company received a purported class action lawsuit which was filed against the Company in the District Court of Central Region in Tel-Aviv, by one plaintiff who is a subscriber of the Company, alleging that the Company (see Note 12C), which was declared a monopoly under the Israeli Restrictive Trade Practices Law, 1988, unlawfully abused its power as a monopoly and discriminated between its customers. The plaintiff claims that the alleged discrimination resulted from the Company charging higher monthly subscription fees from customers who are obliged by insurance company requirements to install location and recovery systems in their vehicles than the monthly subscription fees that are charged from customers who are not required by insurance companies to install location and recovery systems in their vehicles. The lawsuit is yet to be approved as a class action. The total amount claimed if the lawsuit is certified as a class action, was estimated by the plaintiff to be approximately NIS 75 million (US$ 21.1 million). Based on the opinion of the Company's legal counsels, the Company is of the opinion that the lawsuit lacks substantiation, includes incorrect assumptions and inconsistent claims and that the Company has good defense arguments in respect of the claims made by the plaintiff. Notwithstanding the aforesaid, at this preliminary stage, the Company is unable to assess the lawsuit's chances of success.
|
|
7.
|
Claims are filed against the Company and its subsidiaries from time to time during the ordinary course of business, usually with respect to civil, labor and commercial matters. The Company's management believes, based on its legal counsels' assessment, that the provision for contingencies recognized in the balance sheet is sufficient and that currently there are no claims (other than those described in Notes above) that are material, individually or in the aggregate, to the consolidated financial statements as a whole.
|
|
B.
|
Liens
|
NOTE 12
|
-
|
CONTINGENT LIABILITIES, LIENS AND GUARANTEES (cont.)
|
|
C.
|
The Company was declared a monopoly under the Israeli Restrictive Trade Practices Law, 1988, in the market for the provision of systems for the location of vehicles in Israel. Under Israeli law, a monopoly is prohibited from taking certain actions, such as predatory pricing and the provision of loyalty discounts, which prohibitions do not apply to other companies. The Israeli Antitrust Authority may further declare that the Company has abused its position in the market. Any such declaration in any suit in which it is claimed that the Company engages in anticompetitive conduct may serve as prima facie evidence that the Company is either a monopoly or that it has engaged in anticompetitive behavior. Furthermore, it may be ordered to take or refrain from taking certain actions, such as setting maximum prices, in order to protect against unfair competition.
|
|
D.
|
Commitments
|
|
1.
|
As of December 31, 2010, minimum future rentals under operating leases of buildings for periods in excess of one year were as follows: 2011 – US$ 2 million; 2012 – US$ 1.1 million; 2013 – US$ 0.3 million, 2014 and 2015 – US$ 0.1 million.
The leasing fees expensed in each of the years ended December 31, 2010, 2009 and 2008, were US$ 2.8 million, US$ 2.7 million and US$ 2.9 million, respectively.
|
|
2.
|
In November 2007, the Company entered into a 10 year Frame Product and Service Purchase Agreement with Telematics, pursuant to which (after the completion of the sale of Telematics), the Company and Telematics shall purchase from each other certain products and services as detailed in the agreement for a price and subject to other conditions as detailed in the agreement. In addition, each of the Company and Telematics undertook toward one another not to compete in each other's exclusive markets in the area of RF vehicle location and tracking RF technology or similar RF terrestrial location systems and technology. The agreement is for a term of 10 years, following which it shall be renewed automatically for additional consecutive 12 month periods, unless nonrenewal notice is sent by one of the parties to the other. Pursuant to the agreement, each of Telematics and Ituran granted the other party a license to use certain technology in connection with the products and services purchased from each other, which license survives the termination or expiration of the agreement.
|
NOTE 13
|
-
|
CAPITAL NOTES
|
|
1.
|
As of December 31, 2010, minimum future rentals under operating leases of buildings for periods in excess of one year were as follows: 2011 – US$ 2 million; 2012 – US$ 1.1 million; 2013 – US$ 0.3 million, 2014 and 2015 – US$ 0.1 million.
The capital notes were convertible into Company shares until the end of the three-year period following their date of issue. The capital notes entitle their holders (until such time as they are converted into shares) to interest of 3.5% per annum, to be paid in cash or to be added to the principal, at the discretion of the Company.
|
NOTE 13
|
-
|
CAPITAL NOTES (cont.)
|
|
1.
|
(cont.)
|
|
The capital notes were convertible into ordinary shares of the Company, par value NIS 0.33 each. During the first 90 day period following the issuance of the capital notes, the conversion rate was NIS 67.3 (US$ 18.9) per share. Subsequently, the conversion rate was set as the lower of an amount of NIS 67.3 (US$ 18.9) per share or an amount equal to the average of the lowest 10 prices of the share during the 60 trading day period prior to the date of the conversion of the capital notes.
|
|
In 2000, 2001 and 2002, capital notes in an amount of US$ 2.5 million were converted into 241,392 Company shares, US$ 985,000 into 297,645 Company shares and US$ 3.2 million into 1,702,557 Company shares, respectively. As of December 31, 2003 and thereafter due to a cap on the maximum amount of shares to be issued, the outstanding balance of capital notes could be converted into 8,406 Company shares.
|
|
Since the inception of the agreement with Leonardo, through March 2003 (the original contractual maturity of the capital notes), the Company accrued interest in respect of the capital notes.
|
|
The Company elected not to pay the interest in cash. The effect of the accrued interest was reflected in the number of shares issued.
|
|
As of the contractual maturity of the notes, the Company does not accrue any interest in respect of the capital notes
|
|
2.
|
See Note 12A2 for a discussion regarding a pending legal action in connection with the notes.
|
NOTE 14
|
-
|
STOCKHOLDERS’ EQUITY
|
|
A.
|
Share capital
|
|
1.
|
Composition:
|
December 31, 2010 and 2009
|
Registered
|
Issued and fully paid
|
||||||
Ordinary shares of NIS 0.33⅓ each
|
60,000,000 | 23,475,431 |
|
2.
|
Since May 1998, the Company has been trading its shares on the Tel-Aviv Stock Exchange (“TASE”). On September 2005, the Company registered its Ordinary shares for trade in the United States. On that day, the Company issued 4,256,000 shares for an aggregate price of US$ 55.3 million before issuance expenses (including 416,000 shares which were sold to the underwriters).
|
|
3.
|
The Ordinary shares of the Company confer upon their holders the right to receive notice to participate and vote in general meetings of the Company and the right to receive dividends, if and when, declared.
|
|
4.
|
On July 17, 2006, the board of the Company authorized the repurchase of ordinary shares up to US$ 10 million. On January 24, 2008 the Company's board of directors authorized an increase of an additional $10 million. On May 20, 2008, the Company's board of directors authorized another increase of additional $10 million up to an aggregate amount of $30 million.
During the years 2006-2008, the Company has repurchased 2,507,314 ordinary shares (of which 924,433 ordinary shares were purchased by its subsidiary, Ituran Cellular Communication Ltd. which in May 2011 were repurchased by the Company) for an aggregate amount of US$ 27.1 million.
|
|
5.
|
As of December 31, 2010, 2009 and 2008, 10.7% of the share capital of the Company is held by the Company and its subsidiary.
|
|
6.
|
Shares held by the Company and its subsidiaries have no voting rights.
|
NOTE 14
|
-
|
STOCKHOLDERS’ EQUITY (cont.)
|
|
B.
|
Retained earnings
|
|
1.
|
In determining the amount of retained earnings available for distribution as a dividend, the Israeli Companies Law stipulates that the cost of the Company’s shares acquired by the Company and its subsidiaries (that are presented as a separate item in the statement of changes in stockholders’ equity) must be deducted from the amount of retained earnings.
|
|
2.
|
On January 2004, the board of directors of the Company approved its dividend distribution policy whereby the Company would distribute annually 25% of its net income on the basis of the results of the Company each year, on condition that such distribution would not prevent the Company from meeting its existing and future commitments when they come due.
|
|
3.
|
On November 2009, the board of directors of the Company revised the dividend policy to provide for an annual dividend distribution in an amount not less than 50% of its net income on the basis of the results of the Company each year, on condition that such distribution would not prevent the Company from meeting its existing and future commitments when they come due.
|
|
4.
|
Dividends are declared and paid in NIS. Dividends paid to stockholders outside Israel may be converted into dollars on the basis of the exchange rate prevailing at the date of payment.
|
|
5.
|
In April 2008, the Company distributed a dividend of approximately US$ 29.1 million (NIS 108 million), on the basis of the results of the Company for the year ended December 31, 2007.
|
6.
|
In April 2009, the Company distributed a dividend of approximately US$ 3.6 million (NIS 15.5 million) on the basis of the results of the company for the year ended December 31, 2008.
|
|
7.
|
In April 2010, the Company declared a dividend of approximately US$ 31.6 million (NIS 117.2) on the basis of the results of the company for the year ended December 31, 2009. The dividend was paid in April 2010.
|
|
8.
|
In March 2011, the Company declared a dividend in the amount of 1.00 US dollar per share, totaling approximately US$ 22.8 million (NIS 78.8 million). The dividend was paid in April 2011.
|
|
9.
|
Dividends paid per share in the years ended December 31, 2010, 2009 and 2008 were US$ 1.5, US$ 0.17 and US$ 1.34, respectively.
|
NOTE 15
|
-
|
OTHER EXPENSES, NET
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Adjustment of purchase price of subsidiary (*)
|
975 | - | - | |||||||||
Impairment of goodwill and intangible assets (**)
|
157 | 901 | 415 | |||||||||
Other
|
24 | 7 | 3 | |||||||||
1,156 | 908 | 418 |
|
(*)
|
See Note 12A1.
|
|
(**)
|
See Notes 7 and 8.
|
NOTE 16
|
-
|
FINANCING INCOME (EXPENSES), NET
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Short-term interest expenses, commissions and other
|
(404 | ) | (339 | ) | (661 | ) | ||||||
Gains on derivative financial instruments
|
819 | 570 | - | |||||||||
Gains in respect of marketable securities
|
30 | 1,321 | 2,311 | |||||||||
Interest expenses in respect of long-term loans
|
(4 | ) | - | - | ||||||||
Exchange rate differences and others, net
|
(302 | ) | 52 | (1,816 | ) | |||||||
139 | 1,604 | (166 | ) |
NOTE 17
|
-
|
INCOME TAX
|
|
A.
|
Taxes on income included in the statements of income:
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Income taxes (tax benefit):
|
||||||||||||
Current taxes:
|
||||||||||||
In Israel
|
3,191 | 4,184 | 4,738 | |||||||||
Outside Israel
|
5,396 | 4,702 | 4,705 | |||||||||
8,587 | 8,886 | 9,443 | ||||||||||
Deferred taxes:
|
||||||||||||
In Israel
|
(1,877 | ) | (117 | ) | (364 | ) | ||||||
Outside Israel
|
804 | 1,105 | (1,169 | ) | ||||||||
(1,073 | ) | 988 | (1,533 | ) | ||||||||
Taxes in respect of prior years:
|
||||||||||||
In Israel
|
(1,228 | ) | (2,735 | )(*) | (14 | ) | ||||||
6,286 | 7,139 | 7,896 |
|
(*)
|
During 2009, the Company received a tax refund regarding taxes paid in 2007 with respect to the capital gain from the sale of a subsidiary.
|
|
B.
|
Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment Law”)
|
|
C.
|
The Law for the Encouragement of Capital Investments, 1959 (the "Investment Law")
|
NOTE 17
|
-
|
INCOME TAX (cont.)
|
|
D.
|
Reduction in corporate tax rates
|
|
E.
|
Non-Israeli subsidiaries
|
|
Non-Israeli subsidiaries are taxed according to the tax laws and rates in their country of residence.
|
|
F.
|
Tax assessments
|
|
G.
|
Carry forward tax losses
|
|
H.
|
The following is a reconciliation between the theoretical tax on pretax income, at the applicable Israeli tax rate, and the tax expense reported in the financial statements:
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Pretax income
|
16,062 | 25,986 | 23,877 | |||||||||
Statutory tax rate
|
25 | % | 26 | % | 27 | % | ||||||
Tax computed at the ordinary tax rate
|
4,016 | 6,756 | 6,447 | |||||||||
Nondeductible expenses
|
290 | 392 | 218 | |||||||||
Losses in respect of which no deferred taxes were generated (including reduction of deferred tax assets recorded in prior period)
|
2,028 | 1,007 | 480 | |||||||||
Deductible financial expenses recorded to additional paid-in capital
|
(331 | ) | 163 | (389 | ) | |||||||
Taxes in respect of prior years
|
(1,228 | ) | (2,735 | ) | 14 | |||||||
Tax adjustment in respect of different tax rates
|
1,726 | 1,237 | 585 | |||||||||
Utilization of losses of prior years in respect of which no deferred taxes were generated
|
(409 | ) | (337 | ) | - | |||||||
Taxes in respect of withholding at the source from royalties
|
148 | 139 | 134 | |||||||||
Others
|
46 | 517 | 407 | |||||||||
6,286 | 7,139 | 7,896 |
NOTE 17
|
-
|
INCOME TAX (cont.)
|
|
I.
|
Summary of deferred taxes
|
US dollars
|
||||||||
Year ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Deferred taxes included in other current assets:
|
||||||||
Provision for employee related obligations
|
91 | 72 | ||||||
Provision for legal obligation
|
3,414 | - | ||||||
3,505 | 72 | |||||||
Valuation allowance
|
(1,670 | ) | - | |||||
1,835 | 72 |
US dollars
|
||||||||
Year ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Long-term deferred income taxes:
|
||||||||
Provision for employee related obligations
|
350 | 332 | ||||||
Carry forward tax losses
|
4,765 | 5,159 | ||||||
Temporary differences, net
|
1,452 | 1,673 | ||||||
6,567 | 7,164 | |||||||
Valuation allowance
|
(2,679 | ) | (2,720 | ) | ||||
3,888 | 4,444 |
US dollars
|
||||||||
Year ended
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Deferred income taxes included in long-term investments and other assets
|
4,934 | 5,653 | ||||||
Deferred income taxes included in long-term liabilities
|
(1,046 | ) | (1,209 | ) | ||||
3,888 | 4,444 |
|
J.
|
Income before income taxes is composed as follows:
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
The Company and its Israeli subsidiaries
|
(2,664 | ) | 11,273 | 13,413 | ||||||||
Non-Israeli subsidiaries
|
18,726 | 14,713 | 10,464 | |||||||||
16,062 | 25,986 | 23,877 |
NOTE 17
|
-
|
INCOME TAX (cont.)
|
|
K.
|
Uncertain tax positions
|
US dollars
|
||||
(in thousands)
|
||||
Balance at January 1, 2008
|
4,283 | |||
Translation differences
|
50 | |||
Balance at January 1, 2009
|
4,333 | |||
Translation differences
|
31 | |||
Additions based on tax positions related to the current year
|
255 | |||
Balance at December 31, 2009
|
4,619 | |||
Translation differences
|
(276 | ) | ||
Settlements (*)
|
(4,343 | ) | ||
Balance at December 31, 2010
|
- |
|
(*)
|
During October 2010, the Company signed a settlement agreement with the Israeli tax authorities, relating to an audit of its tax returns for the years 2002 through 2008. As a result, the Company decreased the entire amount of the unrecognized tax benefits. The difference between the balance of the unrecognized tax benefits and the amount settled with the tax authorities was presented within taxes in respect of prior years.
|
NOTE 18
|
-
|
EARNINGS PER SHARE
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Net income attributable to stockholder's used for the computation of basic and diluted earnings per share
|
8,702 | 18,192 | 14,882 |
Number of shares
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Weighted average number of shares used in the computation of basic earnings per share
|
20,968 | 20,968 | 21,431 | |||||||||
Add:
|
||||||||||||
Weighted average number of additional shares issued upon the assumed conversion of capital notes (*)
|
- | 9 | 9 | |||||||||
Weighted average number of shares used in the computation of diluted earnings per share
|
20,968 | 20,977 | 21,440 |
|
(*)
|
Following the decision of the district court to accept Leonardo’s claim, the Company has excluded the impact of the shares issuable upon the assumed conversion of the capital notes with respect to the computation diluted earnings per share for fiscal year 2010. (See Notes 13 and 12A2).
|
NOTE 19
|
-
|
RELATED PARTIES
|
|
A.
|
The Tzivtit Insurance Ltd. (“Tzivtit Insurance”), owned by a director of the Company, serves as the Company’s insurance agent and provides the Company with elementary insurance and managers insurance.
|
|
In respect of these insurance services, Tzivtit Insurance is entitled to receive commissions at various rates, paid by the insurance company (which is not considered a related party).
|
|
With respect to basic insurance policies, and directors and offices insurance policies, the Company paid to the insurance company in 2010, US$ 251 thousand and US$ 198 thousand (In 2009 US$ 237 thousand and US$ 173 thousand.)
|
|
Tzivtit Insurance is entitled to commissions in an aggregate amount of NIS 243 thousand (US$ 65 thousand) to be paid to Tzivtit Insurance by the insurance company on account of these policies. (US$ 40 thousand and US$ 51 thousand in 2009 and 2008, respectively.)
|
|
B.
|
In February 2003, an agreement was signed between the Company and A. Sheratzky Holdings Ltd., a wholly-owned and controlled company belonging to Mr. Izzy Sheratzky, Chairman of the Company’s Board of Directors. The agreement includes, among other things, the cost of Mr. Izzy Sheratzky’s monthly employment in an amount of NIS 85,500 (US$ 22,900), entertainment expenses, car maintenance expenses, cellular phone, and entitlement to participate in the profits of the Company in an amount equal to 5% of the pretax income of the Company, plus the share of the Company in the income or losses of affiliated companies, on the basis of the audited consolidated financial statements.
|
|
The agreement is for a two-year period, with automatic two-year extensions, unless either of the parties gives 180 day advance notice of its intention to terminate the agreement.
|
|
Whereas the term of the agreement exceeds three years, under recent amendments to the Law, the Company's audit committee, board of directors and shareholders have ratified and approved the agreement with A. Sheratzky, which according to current Israeli law will remain in force and effect until May 11, 2014.
|
|
C.
|
On September 5, 2002, the Company entered into independent contractor agreements with A. Sheratzky Holdings Ltd. and each of Eyal Sheratzky and Nir Sheratzky (the Co-CEO's of the Company), pursuance to which A. Sheratzky Holdings will provide management services to the Company through Eyal Sheratzky and Nir Sheratzky in consideration of monthly payments in the amount of NIS 48,892 and NIS 49,307 (US$ 13,100 and US$ 13,200), respectively, in addition to providing each of them a company car and reimbursement of certain business expenses. In January 2004, changes in the employment terms of the two Co-CEOs of the Company were approved, whereby in addition to the agreement detailed above, each would be entitled to an annual bonus equal to 1% of the pretax income of the Company, plus the share of the Company in the income or losses of affiliated companies, on the basis of the audited consolidated financial statements.
|
|
Whereas the term of the agreement exceeds three years, under recent amendments to the Law, the Company's audit committee, board of directors and shareholders have ratified and approved the agreement with A. Sheratzky (including third addendum thereto that clarifies the nature of its role and services), which according to current Israeli law will remain in force and effect until May 11, 2014.
|
|
The aggregate expenses to A. Sheratzky Holdings in 2010, 2009 and 2008 (including with respect to B. above), were approximately US$ 2,284,000, US$ 2,831,000 and US$ 2,365,000, respectively.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
|
NOTE 19
|
-
|
RELATED PARTIES (cont.)
|
|
D.
|
In March 1998, an agreement was approved with a related party, Prof. Yehuda Kahane, for financial consulting, whereby the Company would pay the consultant monthly consulting fees of NIS 4,000 (US$ 1,100), linked to the Israeli Consumer Price Index in respect of January 1998. In May 2003, the Company approved an increase in the consideration paid, to a total cost of NIS 15,000 (US$ 4,300) a month, linked to the Israeli Consumer Price Index. The aggregate amount paid to Professor Kahane in each of the years 2010, 2009 and 2008 was approximately US$ 55,000, US$ 50,000 and US$ 54,000, respectively.
|
|
Whereas the term of the agreement exceeds three years, under recent amendments to the Law, the Company's audit committee, board of directors and shareholders have ratified and approved the agreement with Professor Kahane which according to current Israeli law will remain in force and effect until May 11, 2014.
|
|
E.
|
On January 23, 2007, the Company's subsidiary, E-Com Global Electronic Commerce Ltd. ("E-Com "), signed an agreement with Gil Sheratzky for the employment of Mr. Sheratzky as CEO of that company, in consideration of monthly payments in the amount of NIS 25,000 (US$ 7,100), in addition to providing him a company car, managers insurance and education fund contribution (as customary in Israel) and reimbursement of certain business expenses. In his position, Mr. Sheratzky will report to the CEO. The compensation paid to Gil Sheratzky includes a bonus in an amount equal to 2% of the annual increase in E-COM profits before tax (up to a maximum amount of 1% of that company's profits before tax), based on its audited consolidated financial statements for the relevant year, beginning January 1, 2007.
|
NOTE 20
|
-
|
SEGMENT REPORTING
|
|
A.
|
General information:
|
NOTE 20
|
-
|
SEGMENT REPORTING (cont.)
|
|
B.
|
Information about reported segment profit or loss and assets:
|
US dollars
|
||||||||||||||||
(in thousands)
|
Location based services
|
Wireless communications products
|
Other
|
Total
|
||||||||||||
Year ended December 31, 2010
|
||||||||||||||||
Revenues
|
108,101 | 39,724 | - | 147,825 | ||||||||||||
Operating income
|
31,994 | (1,326 | ) | - | 30,668 | |||||||||||
Assets
|
988 | 9,255 | 1,454 | 11,697 | ||||||||||||
Goodwill
|
4,917 | 5,162 | - | 10,079 | ||||||||||||
Expenditures for assets
|
46 | 210 | - | 256 | ||||||||||||
Depreciation and amortization
|
81 | 89 | - | 170 | ||||||||||||
Year ended December 31, 2009
|
||||||||||||||||
Revenues
|
91,574 | 29,807 | - | 121,381 | ||||||||||||
Operating income
|
27,124 | (2,742 | ) | - | 24,382 | |||||||||||
Assets
|
754 | 7,386 | 2 | 8,142 | ||||||||||||
Goodwill
|
4,824 | 4,815 | - | 9,639 | ||||||||||||
Expenditures for assets
|
22 | 123 | - | 145 | ||||||||||||
Depreciation and amortization
|
87 | 75 | - | 162 | ||||||||||||
Year ended December 31, 2008
|
||||||||||||||||
Revenues
|
86,051 | 46,565 | - | 132,616 | ||||||||||||
Operating income
|
22,090 | 3,570 | - | 25,660 | ||||||||||||
Assets
|
753 | 6,442 | 139 | 7,334 | ||||||||||||
Goodwill
|
4,954 | 4,776 | - | 9,730 | ||||||||||||
Expenditures for assets
|
13 | 116 | - | 129 | ||||||||||||
Depreciation and amortization
|
111 | 72 | - | 183 |
|
C.
|
Information about reported segment profit or loss and assets:
|
NOTE 20
|
-
|
SEGMENT REPORTING (cont.)
|
|
D.
|
Reconciliations of reportable segment revenues, profit or loss, and assets, to the enterprise’s consolidated totals:
|
US dollars
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Total revenues of reportable segment and consolidated revenues
|
147,825 | 121,381 | 132,616 | |||||||||
Operating income
|
||||||||||||
Total operating income for reportable segments
|
30,668 | 24,382 | 25,660 | |||||||||
Unallocated amounts:
|
||||||||||||
Other expenses
|
(14,745 | ) | - | (1,617 | ) | |||||||
Financing income (expenses), net
|
139 | 1,604 | (166 | ) | ||||||||
Consolidated income before taxes on income
|
16,062 | 25,986 | 23,877 | |||||||||
Assets
|
||||||||||||
Total assets for reportable segments
|
21,776 | (*) | 17,781 | (*) | 17,064 | (*) | ||||||
Other unallocated amounts:
|
||||||||||||
Current assets
|
103,875 | 113,627 | 93,549 | |||||||||
Investments in affiliated and other companies
|
306 | 314 | 3,248 | |||||||||
Property and equipment, net
|
45,681 | 38,766 | 26,793 | |||||||||
Other assets
|
4,178 | 4,882 | 6,710 | |||||||||
Other unallocated amounts
|
12,528 | 10,498 | 10,535 | |||||||||
Consolidated total assets (at year end)
|
188,344 | 185,868 | 157,899 | |||||||||
Other significant items
|
||||||||||||
Total expenditures for assets of reportable segments
|
256 | 144 | 129 | |||||||||
Unallocated amounts
|
18,424 | 15,554 | 16,818 | |||||||||
Consolidated total expenditures for assets
|
18,680 | 15,698 | 16,947 | |||||||||
Total depreciation and amortization for reportable segments
|
170 | 162 | 183 | |||||||||
Unallocated amounts
|
15,706 | 12,368 | 9,932 | |||||||||
Consolidated total depreciation and amortization
|
15,876 | 12,530 | 10,115 |
|
(*)
|
Including goodwill.
|
NOTE 20
|
-
|
SEGMENT REPORTING (cont.)
|
|
E.
|
Geographic information
|
Revenues
|
||||||||||||
Year ended December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Israel
|
71,211 | 62,367 | 74,878 | |||||||||
United States
|
3,700 | 3,469 | 3,214 | |||||||||
Brazil
|
61,096 | 44,564 | 42,838 | |||||||||
Argentina
|
10,857 | 10,442 | 11,193 | |||||||||
Others
|
961 | 539 | 493 | |||||||||
Total
|
147,825 | 121,381 | 132,616 |
Property and equipment, net
|
||||||||||||
December 31,
|
||||||||||||
(in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Israel
|
10,053 | 8,017 | 5,661 | |||||||||
United States
|
161 | 104 | 30 | |||||||||
Brazil
|
31,112 | 29,143 | 16,240 | |||||||||
Argentina
|
4,821 | 4,998 | 5,143 | |||||||||
Total
|
46,147 | 42,262 | 27,074 |
|
-
|
Revenues were attributed to countries based on customer location.
|
|
-
|
Property and equipment were classified based on major geographic areas in which the Company operates.
|
|
F.
|
Major customers
|
NOTE 21
|
-
|
FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT
|
|
A.
|
Concentrations of credit risks
|
|
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivables, derivatives and deposits in escrow.
|
|
Most of the Group’s cash and cash equivalents, deposits in escrow and short-term investments (including investments in trading marketable securities), as of December 31, 2010 and 2009, were deposited with major Israeli banks. The Company is of the opinion that the credit risk in respect of these balances is immaterial.
|
|
Most of the Group’s sales are made in Israel, South America and the United States, to a large number of customers, including insurance companies. Management periodically evaluates the collectability of the trade receivables to determine the amounts that are doubtful of collection and determine a proper allowance for doubtful accounts. Accordingly, the Group’s trade receivables do not represent a substantial concentration of credit risk.
|
NOTE 21
|
-
|
FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT (cont.)
|
|
B.
|
Foreign exchange risk management
|
Asset derivatives
|
Liability derivatives
|
|||||||||
As of December 31, 2010
|
||||||||||
Balance sheet location
|
Fair
value
|
Balance sheet location
|
Fair
value
|
|||||||
Derivatives designated as hedging instruments:
|
- | - | ||||||||
Derivatives not designated as hedging instruments:
|
||||||||||
Foreign exchange contracts
|
Other assets
|
32 |
Other liabilities
|
- | ||||||
Total derivatives not designated as hedging instruments
|
32 | - | ||||||||
Total derivatives
|
32 | - |
Derivatives in cash flow
hedging relationships
|
Amount of gain or recognized in OCI
on derivative (effective portion)(*)
|
Location of gain or reclassified from accumulated OCI into income
(effective portion)(*)
|
Amount of loss or reclassified from accumulated OCI into income
(effective portion)(*)
|
||||||
As of December 31, 2010
|
|||||||||
Foreign exchange contracts
|
103 |
Cost of revenues
|
225 |
|
(*)
|
During 2010, the gains or losses that were recognized in earnings for hedge ineffectiveness were insignificant.
|
Derivatives not designated
as hedging instruments
|
Location of gain or recognized
in income on derivative
|
Amount of gain or recognized in income on derivative
|
|||
As of December 31, 2010
|
|||||
Foreign exchange contracts
|
Financing income, net
|
819 |
NOTE 21
|
-
|
FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT (cont.)
|
|
B.
|
Foreign exchange risk management (cont.)
|
Asset derivatives
|
Liability derivatives
|
|||||||||
As of December 31, 2009
|
||||||||||
Balance sheet location
|
Fair
value
|
Balance sheet location
|
Fair
value
|
|||||||
Derivatives designated as hedging instruments:
|
||||||||||
Foreign exchange contracts
|
Other assets
|
- |
Other liabilities
|
122 | ||||||
Total derivatives designated as hedging instruments
|
- | 122 | ||||||||
Derivatives not designated as hedging instruments:
|
||||||||||
Foreign exchange contracts
|
Other assets
|
14 |
Other liabilities
|
- | ||||||
Total derivatives not designated as hedging instruments
|
14 | - | ||||||||
Total derivatives
|
14 | 122 |
Derivatives in cash flow
hedging relationships
|
Amount of gain or recognized in OCI
on derivative (effective portion)(*)
|
Location of gain or reclassified from accumulated OCI into income
(effective portion)(*)
|
Amount of gain or reclassified from accumulated OCI into income
(effective portion)(*)
|
||||||
As of December 31, 2009
|
|||||||||
Foreign exchange contracts
|
366 |
Cost of revenues
|
488 |
|
(*)
|
During 2009, the gains or losses that were recognized in earnings for hedge ineffectiveness were insignificant.
|
Derivatives not designated
as hedging instruments
|
Location of gain or recognized
in income on derivative
|
Amount of gain or recognized in income on derivative
|
|||
As of December 31, 2009
|
|||||
Foreign exchange contracts
|
Financing income, net
|
570 |
US dollars
|
||||||||
December 31,
|
||||||||
(in thousands)
|
2010
|
2009
|
||||||
Forward transactions – for the exchange of:
|
||||||||
NIS into US dollars(1)
|
- | 4,500 | ||||||
US dollars into NIS(2)
|
10,000 | 6,000 |
NOTE 21
|
-
|
FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT (cont.)
|
|
C.
|
Fair value of financial instruments
|
US Dollars
|
||||||||||||
December 31, 2010
|
||||||||||||
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
Trading securities (*)
|
1,509 | - | - | |||||||||
Derivatives
|
||||||||||||
Derivatives designated as hedging instruments
|
- | - | - | |||||||||
Derivatives not designated as hedging instruments
|
- | 32 | - | |||||||||
Total
|
1,509 | 32 | - |
US Dollars
|
||||||||||||
December 31, 2009
|
||||||||||||
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
Trading securities (*)
|
4,213 | - | - | |||||||||
Derivatives
|
||||||||||||
Derivatives designated as hedging instruments
|
- | 122 | - | |||||||||
Derivatives not designated as hedging instruments
|
- | (14 | ) | - | ||||||||
Total
|
4,213 | 108 | - |
|
(*)
|
The entire balance consist of US government debentures.
|
Gustavo R. Chesta (Partner)
Estudio Urien & Asociados
Argentina
February 14, 2011
|
ITURAN LOCATION AND CONTROL LTD.
(Registrant)
By: /s/ Eyal Sheratzky
——————————————
Eyal Sheratzky
Chief Executive Officer
|